How one trader made instant millions off of the Fed

One options trader made an instant windfall by putting on a well-timed trade that profited from the quick rally in bonds that followed the Federal Reserve's decision to keep short-term rates at ultralow levels.

At 1:03 p.m. ET, less than an hour before the central bank's announcement, an options trader made a bullish bet on the popular long-term Treasury ETF TLT, which was then trading at $118.83.

Specifically, the trader bought 51,000 October 121/124 call spreads on the TLT for 66 cents per share, for a total cost of $3.4 million. (Each options contract controls 100 shares.)

This is a trade designed to profit from a rise in the TLT over the next month—but the trader did not have to wait nearly that long. After the Fed did what most thought it would and kept its key federal funds rate target at ultralow levels, the ETF ripped higher, closing the day at $120.25, and opening Friday at $121.21.

Read More From jittery to joyful, bond markets cheer Fed

That sent the value of the options soaring, and as of 10:30 a.m. ET Friday, the options package is worth $1.15, for a paper profit of $2.5 million in just four hours of trading.

And more gains could still be ahead. If the TLT continues to rise, and closes at or above that $124 mark on Oct. 16, the trader will enjoy a total profit of $12 million.

Thursday on CNBC's "Fast Money," Dan Nathan of said that the $124 level marks "recent resistance" for the ETF.

Follow the show on Twitter @OptionsAction.

Latest Video


Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.